CPQ & Subscriptions a quick guide
Working with contracts and subscriptions introduces some new nomenclature and to make it easier to understand and follow, the most common abbreviations are explained below. In contract and subscription, the content is about value rather than price and the reason is that when contracts are signed the payment will not be upfront, it will be paid over time and thereby bring value to the company. Service pricing comes with a lot of abbreviations, we’ve compiled a helpful list below.
- TCV = Total Contract Value
- ACV = Annual Contract value
- SV = Subscription Value
- PV = Period Value
- OTC = One Time Charge
- MRR = Monthly Recurring Revenue
- ARR = Annual Recurring Revenue
- TCO = Total Cost of Ownership
- EaaS = Equipment as a Service
- CPQ = Configure, Price, Quote
Total Contract Value (TCV)
Total Contract Value or TCV is the total value of all subscriptions over the length of a contract.
Annual Contract Value (ACV)
Annual Contract Value or ACV is the value per year within a contract. For a 1 year contract, the ACV is the same as the TCV. The TCV is the sum of all ACVs. The ACV is not the TCV/”Number of contract years” due to the fact that all One Time Charges (OTC) will be part of the Year 1 ACV and that over the contract length different periods can be present.
Subscription Value (SV)
The total value of one Subscription including all Recurring Charges and One Time Charges.
Period Value (PV)
The total value of recurring prices including discounts for a given period.
One Time Charge (OTC)
One Time Charges are charges that will be billed at one single occasion at the start of a subscription.
Monthly Recurring Revenue (MRR)
Monthly recurring revenue (MRR) is the revenue that this contract will have on a monthly recurring basis.
Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) is the revenue that this contract will have on an annual recurring basis.
Equipment as a Service (EaaS)
Equipment as a service or (EaaS) is a model where the producer of a product rents out equipment to end-users while collecting payments on a monthly, or yearly basis for the usage of the product.
Bonus: Configure Price Quote (CPQ & subscriptions)
Configure, Price, Quote (CPQ Software) is a sales tool that helps companies produce 100% accurate pricing and quotes for highly configurable products. CPQ helps drive revenue growth by making it simpler, and faster to sell complex products. Improve efficiency with CPQ by automating processes and eliminating errors.
How does CPQ help optimize subscriptions?
Creating new, predictable revenue is the desire of all businesses, and now leaders in your industry are finding new revenue streams to achieve that outcome. Implementing a proper CPQ with the ability to incorporate subscriptions—whether bundling the optimal deal with services or moving towards an equipment as a service model—is the only way to sell the highly customizable products that are essential to your business. Your customers want to purchase the outcome of uptime and you must prepare to deliver this experience to stay relevant to their business needs.
Interested in learning more about CPQ & subscriptions? Schedule your demo today!
Or check out our latest eBook: The Future of Manufacturing Subscription models